When Noranda Aluminum was created, it boasted a fully integrated suite of upstream and downstream assets. It also had a melange of accounting, risk-management, supply chain and management software. The mix of mines and mills was a competitive advantage, but the patchwork of software was not. New leadership made the decision to replace the entire grab bag of legacy systems with a single enterprise resource planning (ERP) system.
Noranda Aluminum Holding Corp. was formed in March 2007 when private-equity firm Apollo Management LP acquired a portion of Xstrata (Schweiz) AGs aluminum business. Today, the Franklin, Tenn.-based company is one of the top North American integrated producers of primary aluminum products and rolled aluminum coil. Its upstream business consists of an aluminum smelter near New Madrid, Mo., and supporting operations at its vertically integrated bauxite mine in St. Ann, Jamaica, and its alumina refinery in Gramercy, La., while its downstream business comprises four rolling mill facilities in Arkansas, North Carolina and Tennessee.
Cash flow considerations dictated that the implementation be done in phases. That process is about half complete, with Noranda selecting Microsoft Dynamics AX as the ERP system, and engaging accounting and consulting firm Crowe Horwath LLP as project coordinator and facilitator. Crowe was already working for Noranda in other capacities, and the aluminum company was already operating a wide array of Microsoft systems, so there was an organic element to the commissions. Still, Ethan Lane, chief information officer for Noranda, said his firm did its due diligence and requested proposals from several ERP vendors and installation support firms.
We wanted our ERP system to be a catalyst for company change, Lane said. We went from being part of a larger company to being owned by private equity, and with the ultimate goal of going public. Our different systems had operated as silos, but we wanted to roll them into a more integrated system. Also, with the goal of going public, we needed extremely high financial integrity.
In the middle of the planning, the recession hit. By the time of the recession in 2008 we were already reviewing our systems, he said. When it was clear that a major recession was upon us, that led to our choice in late 2008. We did some downsizing and cost controls, but we also made a commitment to coming out of the recession strong, retaining the goal of going public. We had a lot to fix, and we needed a catalyst.
Josh Cole, principal for manufacturing consulting services at Crowe, who operates out of Grand Rapids, Mich., adds that another significant challenge was the big freeze that swept through Missouri and Kentucky, taking out power to the Noranda Smelter operations, severely hampering Norandas operating capacity. Despite all of that, Kip Smith, the CEO, and Ethan remained committed to this project as a means to support Norandas people. They could have shelved it and said they had to focus just on keeping the lights on. But they knew that their mix of legacy systems would not allow their company and their people to grow.
Rakesh Kumar, global industry product director of manufacturing for Microsoft Dynamics ERP, said that is a common problem. We find that industry has traditionally not invested enough in business software in the past, he said. The management team now realizes that it makes sense. He noted that newer plants and equipment are often networked and have strong digital capabilities. Smart businesses extend those capabilities through incremental investments in software to link the plant and machines. These investments and trends sort of connect top floor to the shop floor and also improve business efficiencies throughout an organization, he said.
Multiple drivers influence these industry trends, Kumar said. One is the fact that customers and business partners want responses in almost real time, which effectively demands digital interaction. Competition is dictating better operations effectiveness, which is also resulting in modernization, he said. Metal companies are not able to attract and retain a younger work force unless they provide a tech-savvy environment. Many customers are also investing because of increased pressures to meet environmental regulations.
Microsoft, a relative newcomer to the ERP market, said that it continues to invest in strengthening its Dynamics solutions. One of the strongest trends in the industry, and one particularly relevant to the metals segment, is the move toward global multi-plant manufacturing operations. Our recent flagship release, Dynamics AX 2012, addressed that specifically, Kumar said. Another differentiator for AX 2012 is strong support for mixed-mode manufacturing. Many companies in the metals segment need elements of process as well as discrete manufacturing. The next version of AX 2012 will provide the metals industry with more process manufacturing functionalities. Those will be detailed at the time of its release by the end of this calendar year.
Many metal companies have disconnected systems that hold islands of information, which makes it difficult to gain a holistic view of the enterprise, Kumar said. Smart mills and fabricators are now looking at their business solutions in a more comprehensive fashion instead of their earlier investments in piecemeal fashion. The key challenge is that business users have gotten accustomed to these islands of information. A comprehensive deployment of powerful business solution systems therefore poses challenges for some customers.
For all Noranda was trying to accomplish at the higher level, Lane and his colleagues knew that they needed some modularity and some effectiveness within the IT group. Change was essential, Lane said, but if the new systems were too different and too hard to learn, then there was a risk of bogging down the expected gains.
The road map still had to overlay Norandas company topogrgraphy, its hardware, its plants, and its supply chain. The network and the servers had to function throughout, Lane said. It would not have been possible to install a complete ERP system and just pop the clutch. The answer was a phased model: finance first, from corporate down to individual plants; procurement and supply chain were second; operations and maintenance are phase three; and final integration and all remaining systems are phase four.
We are technically in the middle of phase three, Lane said. The process is going very smoothly, but we have taken breaks in between segments and phases. That has allowed us to settle each segment, and also settle things across the whole organization. At the same time, the road map assures everyone that the steps and the breaks were part of a continuing process.
Lane also stressed that having the same vendor support people and installation staff from the consultancy allowed Noranda to move from installation stages and phases with the breaks in between, without loosing the accumulated expertise and synergies of collaboration. That has also allowed us to go back during each phase and in the breaks and realize some of the enhancements that we did not think we were going to be able to capture until later in the process.
Cole concurred. ERP installations typically focus on the basic, need-to-have components, allowing for the nice-to-have enhancements to be incorporated over time. You have to have priorities. The phased approach that Ethan devised was built over a defined plan and project charter to guide the priorities for each phase.
ERP always comes down to the return on investment vs. the risk of disruption to the business, Lane explained. From the preliminary internal discussions to the actual planning and the implementation the balance is always between what you are going to gain in productivity and cost reduction, and the costs and temporary losses during the implementation.
Lane said that from the start senior executives at Noranda committed to the ERP path both strategicallyÑas a catalyst for change, to support growth, as a common ground to bring disparate parts of the new company together, and as a vehicle for ensuring sound financials in expectation of a public offeringÑand tactically, in laying out the phases for implementation.
Any time you move on ERP, Lane said, you have to believe that your business processes are broken and that you need a change. The ERP system really is just a tool, a mechanism. What you are really accomplishing is the fundamental change in your enterprise. The change is what you are after, not just the functionality of the ERP system.